REG - Animalcare Group PLC - Proposed Acquisition of Ecuphar NV and Placing <Origin Href="QuoteRef">ANCR.L</Origin> - Part 2
23/06/2017 07:08
- Part 2: For the preceding part double click ID:nRSW9589Ia
consultants), of which 76 were sales
representatives and an additional 28 were sales agents, as follows:
Employees Sales reps
Benelux 33 7
Germany 34 13
Spain 73 37
Portugal 11 7
Italy 11 7 (+ 28 agents)
Wholesale segment 39 5
Total 201 76 (+ 28 agents)
Ecuphar's commercial workforce is composed of a team of ambitious and result-oriented employees with an in-depth knowledge
of their respective regional markets and strong local relationships with customers.
Wholesale
In addition to its Pharmaceuticals segment, Ecuphar has a Wholesale segment, which focuses on the purchase and re-sale of
veterinary pharmaceuticals, supplies and instruments to Belgian veterinary practices. This business is relatively stable at
both revenue and gross margin, and generates a gross margin lower than that of the Pharmaceuticals segment due to the
nature of the wholesale business model.
Market, customers and competitive environment
Market
The European animal health market in which Ecuphar operates is a highly regulated and specialist market with significant
intellectual and financial barriers to entry. Animal health in Europe is a large and growing market, underpinned by robust
macroeconomic drivers and underlying trends. In the companion animal and equine market segments, these include population
growth, and increasing wealth and urbanisation. Population growth and rising life expectancy are driving an increase in the
demand for companion animals as pets. In addition, the increase in wealth has led to an increased focus on the welfare of
animals and therefore an increased propensity for pet and horse owners to buy animal health products. Pets are increasingly
seen as a "family member" which also leads to higher spending on animal health products.
The food producing animal market demonstrates similarly solid fundamental drivers and themes, with population growth and
increasing wealth driving increases in the levels of protein consumption.
Ecuphar's management team believes that the business is well positioned to capitalise on the underlying growth in the
animal health market.
Customers
The largest group of Ecuphar's customers are veterinary practices, which, depending on local market rules and customs are
supplied either directly by Ecuphar or through wholesalers and/or distributors. The commercial efforts of Ecuphar are
largely directed at veterinary practices as they create the underlying demand for its products. Customer concentration for
Ecuphar is limited with its top ten customers in 2016 together representing less than 20 per cent. of revenue. Ecuphar's
top ten customers are, with the exception of one distributor, all wholesalers who are not the actual end-customer, so in
effect customer concentration can be considered lower still.
Geographically, Ecuphar's customers are spread broadly and total revenue in 2016 can be broken down as follows:
http://www.rns-pdf.londonstockexchange.com/rns/9589I_7-2017-6-23.pdf
Competitive environment
Similar to Animalcare, in all countries where Ecuphar operates, the market is dominated by large multinationals that have
consolidated over the past years, such as Zoetis/Abbott, Elanco/Novartis, Boehringer/Merial and MSD/Intervet.
Ecuphar is differentiating itself from such players by focusing on certain niche markets, such as for instance odontology,
dermatology, surgery/anaesthesia and otology. In such niche markets, Ecuphar often markets its products under umbrella
brands, such as Orozyme, Dermazyme, Quirofarm and Otofarm. Ecuphar further tries to differentiate itself through its
efforts to create customer loyalty. This is achieved through, among other things, value added services such as online
advisory, maintenance of equipment, sector meetings and training seminars; as well as through stable local sales teams with
many sales representatives having been with Ecuphar for many years, creating a close personal link between the customer and
Ecuphar. As a result, Ecuphar can often focus more on attracting business through the relationship and the solution than
through price.
In the markets where it operates, Ecuphar is also well positioned to become a distributor of choice for licensors that are
looking for a professional local sales and marketing company. Because of its entrepreneurial culture and long-lasting local
presence, Ecuphar is often preferred by licensors over larger players that often only want to focus on their own product
portfolio and who may be slower in making decisions and preparing new product launches because of administrative procedures
and complicated international structures.
The competitive market is also considered by Ecuphar to be fragmented, and the Ecuphar management team have a proven track
record of growth through acquisitions to help the Enlarged Group take advantage of the right opportunities.
Ecuphar's financial record
Since its foundation, Ecuphar has developed a strong track record of high growth and cash generation. The table below
provides a summary of the financial results of Ecuphar for each of the three financial years ended 31 December 2014, 2015
and 2016 and has been extracted from the historical financial information contained below in this Announcement. This
summary financial information should be read in conjunction with the full text of this Announcement. Investors should not
rely solely on the summarised financial information.
£ million 12 months to 31 December
2014 2015 2016
Revenue 34.5 47.1 68.4
% change 37% 45%
Gross Margin 10.6 16.5 28.3
% of revenue 31% 35% 41%
Underlying EBITDA 4.2 4.8 8.9
% of revenue 12% 10% 13%
EBITDA 3.9 3.4 10.7
% of revenue 11% 7% 16%
Underlying Net Earnings 1.5 1.3 4.0
Between 2014 and 2016, Ecuphar's revenue nearly doubled to £68.4 million due to the 2015 acquisition of Esteve's animal
health business and the resulting expansion into the Spanish, Italian and Portuguese animal health markets, in combination
with organic growth driven by the launch of new products and distributions, as well as existing products. Over the same
period, gross margin increased from 30.8 per cent. to 41.4 per cent. of revenue as the relative contribution of Ecuphar's
higher margin Pharmaceuticals segment became more important in the overall revenue mix, while growth in the lower margin
Wholesale segment was less pronounced. Underlying EBITDA margin increased from 12.2 per cent. of revenue in 2014 to 13.0
per cent. in 2016, following a decline to 10.2 per cent. in 2015 due to the temporary impact of the integration of the
acquired Esteve animal health business.
Underlying EBITDA has been adjusted for non-recurring items which amounted to £1.8 million in 2016. This is comprised of
the gain on the sale of Nutri-Science (£2.4 million) and £0.6 million non-recurring costs, largely related to the
integration of the Esteve acquisition (£0.4 million). In 2015, non-recurring items largely related to the Esteve
acquisition comprising transaction costs (£0.4 million) and a PPA adjustment on acquired stock (£0.4 million).
Non-recurring items in 2014 largely comprised non-recurring market research and M&A costs (£0.3 million).
Ecuphar has high cash generating capabilities as a result of its business model which focuses on product development and
sales and marketing, while manufacturing is outsourced. Therefore, capital expenditure is largely limited to new product
development investments and cash conversion is high.
Recent trends, current trading and outlook
Trading since 31 December 2016 has been broadly in line with management expectations. Ecuphar has, over this period
continued to invest in systems and people to further strengthen the organisation of the company. Recent hires in 2017
include a new country manager in Italy and a new group IT manager.
Ecuphar is continuing to invest in its new product development and since 31 December 2016, has closed a number of
agreements related to manufacturing, clinical trials and regulatory consulting for products under development. Ecuphar
management expects Ecuphar's next new product launch to occur during the fourth quarter of 2017 or the first quarter of
2018. In Belgium, Ecuphar lost the distribution rights for a number of companion animal products from Sogeval (which
together represented less than £1 million of revenue in 2016) effective 1 January 2017, following its acquisition by Ceva
(in December 2013). A number of new distribution agreements are, however, being discussed with partner companies to further
complement Ecuphar's product offering in the future.
In February 2017, Ecuphar acquired from Elanco the rights to market a veterinary product in Germany, Ripercol Drench, a
roundworm remedy for production animals. This product acquisition will complement Ecuphar's product portfolio for cattle,
however, it is not expected to have a material impact on Ecuphar's financial performance.
In the second half of 2017, Ecuphar is expecting to start distributing its own Orozyme range of companion animal products
in Spain and Portugal, which have until then been distributed by local distributors in those countries.
4. Strategy of the Enlarged Group
Following Completion, it is intended that the Enlarged Group will continue to grow both organically and through selective
acquisitions to accelerate its overarching strategy of becoming a leader in the European animal health market.
The Enlarged Group's core areas of strategic focus will be on:
• initiating cross selling opportunities of both Animalcare's and Ecuphar's products across existing customers and
distribution channels;
• implementing an effective business integration, including by combining product development activities, providing the
technology and systems to drive product quality improvement programmes and by optimising the Enlarged Group's supply
chain;
• developing the Enlarged Group's wider network of partnerships and strategic alliances in order to increase its
exposure, as licensor and licensee, to global animal health leaders;
• leveraging its platform by identifying selective value-accretive acquisitions that can broaden the pan-European
sales, marketing and distribution platform of the Enlarged Group;
• diversifying the Enlarged Group's portfolio of products into additional therapeutic areas within the companion
animal, as well as production animal and equine, markets; and
• continuing the shift towards broadening the Enlarged Group's pipeline innovations to include novel therapies.
The Existing Directors and Proposed Directors believe that the key components required to ensure that the Enlarged Group
continues to deliver this long-term growth strategy are to:
• continue to attract and retain the highest calibre people to drive forward its development;
• maintain leadership capability in research and development; and
• invest in high quality infrastructure in strategic locations.
5. Board of Directors and Proposed Directors
The Board of Animalcare is currently comprised of James Lambert as Non-executive Chairman, Iain Menneer as Chief Executive
Officer, Chris Brewster as Chief Financial Officer, Lord Nick Downshire as Non-executive Director and Raymond Harding as
Non-executive Director.
The following changes, each of which will take effect from Admission, will be made to the Board in connection with the
Acquisition:
• Chris Cardon, (proposed Chief Executive Officer), Walter Beyers (proposed Chief Financial Officer), Jan Boone
(proposed Non-executive Chairman), Edwin Torr (proposed senior independent Non-executive Director) and Marc Coucke
(proposed Non-executive Director) will be appointed as Directors;
• Iain Menneer will remain a Director following Admission and his role within the Group will change to Chief Operating
Officer;
• James Lambert will step down as Chairman of the Company but will remain on the Board as a Non-executive Director;
• Chris Brewster will resign as a Director but will remain a critical and committed member of the senior management
team of the Enlarged Group as Country Manager of the Enlarged Group's UK business; and
• Raymond Harding will resign as a Director.
The biographical details of the Directors upon Admission are set out below:
Chris Cardon (aged 49) - Proposed Chief Executive Officer
Chris founded Ecuphar as Chris Cardon NV in 2001 to capitalise on opportunities identified in the animal health industry.
The company began with the development of a number of original and high-quality OTC products for companion animal markets.
Chris graduated as a pharmacist from the University of Ghent in 1993 after which he took over his family's pharmacy
business. In 1995, he completed an MBA at the Vlerick Leuven-Gent Management School and then in 2006 received the
prestigious award "Export Lion of Flanders 2005" in the Young Exporters category.
Chris has a strong entrepreneurial background in human OTC product development. In 1996, Chris established Mooss Pharma, a
company which developed human OTC products that were exclusively distributed by pharmacists. Mooss Pharma developed into a
key player in the Belgian market, and in 2001 the OTC assets of Mooss Pharma were acquired by Omega Pharma.
Walter Beyers (aged 57) - Proposed Chief Financial Officer
Walter is the current Chief Financial Officer of Ecuphar. He has a master's degree in Economics from the University of
Antwerp and obtained an MBA from the University of Leuven (KUL) in Belgium.
Walter has significant experience in senior financial management positions in publicly listed and privately owned
companies.
Walter started his career with the American multinational Cargill and subsequently joined his family's business in
logistics until he sold that business. He then became finance director of Akeda, a Belgian family office and in 1998 he
joined Euronext-listed company USG People, for which he worked for eight years, before working for listed companies
Autogrill and Ecodis, then returning to USG People in 2009 for a further five years as VP Finance, being responsible for
ten countries in Europe.
Before joining Ecuphar in April 2016, he was CFO Europe for the US based FCMG manufacturer Ecover-Method.
Iain Menneer (aged 47) - Proposed Chief Operating Officer
Iain is the current Chief Executive Officer of the Company. He has a degree and PhD in Chemistry, both from Newcastle
University.
Following roles in the brewery industry in product development and technical research, Iain joined the Group in 2003,
working in sales, marketing and business development roles, including an instrumental role in the new product development
pipeline.
Iain was promoted to the Board as Director of Marketing in July 2011. Iain was appointed Managing Director of Animalcare
Limited in March 2012 and subsequently Chief Executive Officer of the Company in January 2013, since when he has led the
transformation of the business infrastructure, including the focus on new product development. Following Admission, Iain
will fulfil the role of Chief Operating Officer in the Enlarged Group.
Jan Boone (aged 45) - Proposed Chairman
Jan is the Chief Executive Officer of Lotus Bakeries, which is listed on Euronext Brussels. He started at Lotus Bakeries as
managing director in 2005 and was named chief executive officer in 2011.
Between 2000 and 2005, Jan served as Head of Corporate Controlling and Member of the Executive Committee of Omega Pharma.
He started his career in the audit department at PricewaterhouseCoopers and holds a Master's degree in Applied Economics
(KU Leuven) and a Master's degree in Audit (UMH).
In addition to his role at Lotus Bakeries, Jan serves as non-executive director of Club Brugge.
Edwin Torr (aged 57) - Proposed Senior Independent Non-Executive Director
Edwin Torr has significant experience of international veterinary and animal health markets, gained over a period of more
than 20 years, during which time he has worked for ICI, Pitman Moore, Alfa Laval Agri and Dechra Pharmaceuticals. He was
part of the management buyout team that set up Dechra Veterinary Products in 1997, and was an executive director on the
board of the Dechra entity that was listed on the London Stock Exchange from 2000 until 2013. During this time, he was
responsible for business development, managed the European business unit and was instrumental in setting up the USA
business. Since 2014, Edwin has independently advised various companies on sales and marketing structures, M&A
opportunities, 'in' and 'out' licensing of products and investment opportunities within the veterinary and animal health
market sector.
James Lambert (aged 58) - Proposed Non-Executive Director
James was appointed Chairman of the Company in 2008 when the Company was acquired by Ritchey plc for whom he had been the
chairman since 2005 and a non-executive director since 2003. James was previously co-founder and Chief Executive Officer of
R&R Ice Cream where under James' leadership, R&R Ice Cream made a series of acquisitions to become the largest ice cream
manufacturer by volume in the UK. James is now chairman of Burton's Biscuits, a company he helped Ontario Teachers' Pension
Plan acquire in 2013. He was also awarded the EY UK Entrepreneur of the Year award in 2014.
Marc Coucke (aged 52) - Proposed Non-Executive Director
Marc founded Omega Pharma in 1987 and developed the company into a leading pan-European OTC health and personal care
business. Marc has served as both chairman and chief executive officer of Omega Pharma. Following the sale thereof in 2015
to Perrigo Company plc for E3.6 billion, Marc invests via his private investment firm Alychlo NV in several listed and
non-listed companies.
Marc currently serves as chairman of Mithra Pharmaceuticals (EBR: MITRA) and as non-executive director of Fagron (EBR:
FAGR), in addition to a number of private companies.
Marc graduated as a pharmacist from the University of Ghent after which he completed an MBA at the Vlerick Leuven-Gent
Management School. He was also awarded, as Chief Executive Officer of Omega Pharma, the EY Flemish Entrepreneur of the Year
award in 2002.
Lord Nick Downshire (aged 58) - Proposed Non-Executive Director
Nick joined the Board of the Company when it was acquired by Ritchey plc for whom he had acted as a director since 1998.
Nick is a qualified chartered accountant who has worked in corporate finance and venture capital. He has held and still
holds non-executive directorships in a diverse range of businesses in the insurance, agricultural, hospitality, education
and technology sectors. Nick runs an estate in Yorkshire with a range of activities including quarrying, renewables,
forestry and a hotel as well as agriculture and real estate. He is also Chairman of the Agriculture and Land Use Committee
for the Country Landowners & Business Association and also sits on their national policy committee, as well as acting as a
trustee for a number of charitable and land related trusts.
6. Financial effects of the Acquisition
Animalcare is financing the Acquisition through a combination of the Consideration Shares, the proceeds of the Placing and
through existing cash on Animalcare's balance sheet.
The Existing Directors believe that, taking into account the business and prospects of the Enlarged Group, the Acquisition
will be enhancing to the Board's expectations of underlying earnings for the Existing Group in the first full financial
year of ownership.
For the year ended 31 December 2016, Ecuphar recorded revenue of £68.4 million and Underlying EBITDA of £8.9 million. The
table below shows an unaudited pro forma aggregated income statement for the Enlarged Group for the year ended 31 December
2016:
in £'000 Animalcare Ecuphar Total
Revenue 15,556 68,361 83,917
Gross profit 8,722 28,275 36,997
Operating costs (5,181) (22,236) (27,417)
Operating profit 3,541 6,039 9,580
Depreciation, amortisation & impairment 402 4,690 5,092
Non recurring items - (1,814) (1,814)
Underlying EBITDA 3,943 8,915 12,858
Financial expenses 36 (988) (952)
Financial income - 97 97
Exceptional costs (172) - (172)
Profit before tax 3,405 5,148 8,553
Taxation (466) (1,632) (2,098)
Net (loss) profit 2,939 3,516 6,455
Underlying net earnings 3,139 3,964 7,103
Notes:
The Existing Group's results have been presented on a pro forma basis for 12 months period to 31 December 2016, comprising
the audited six month period to 30 June 2016 from the audited 12 month accounts to 30 June 2016, plus the unaudited interim
accounts to 31 December 2016.
The Ecuphar Group's results have been extracted from the audited 12 months accounts to 31 December 2016.
Underlying EBITDA is summarised in paragraph 3 of this Announcement.
Ecuphar has existing credit facilities with KBC Bank NV, BNP Paribas Fortis NV, Belfius Bank NV and ING België NV, details
of which are set out in paragraph 15 of Appendix I and in the notes to the historical financial information contained in
Appendix II in this Announcement. These facilities will continue to be available to Ecuphar after Completion. The Existing
Group does not have any debt facilities.
7. Details of the Acquisition
Animalcare has entered into the Share Purchase Agreement, pursuant to which it has conditionally agreed to acquire the
entire issued share capital of Ecuphar from the Vendors in consideration for the issue of Consideration Shares and cash to
the Vendors. The cash component of the consideration will be satisfied in part through a placing of approximately 8.6
million New Placing Shares (representing approximately 40.4 per cent. of the Existing Issued Share Capital) to raise gross
proceeds of not less than £30.0 million, with the balance (of £4.0 million) to be funded by existing cash held by the
Group. The number of Consideration Shares to be issued to the vendors of Ecuphar, will be determined following completion
of the Placing (and by reference to the exact number of New Placing Shares issued in the Placing).
Under the Share Purchase Agreement, completion of the Acquisition is conditional on, among other things, the passing of
Resolutions 1 to 6 at the General Meeting, Admission and the Placing and Admission Agreement having become unconditional.
The Share Purchase Agreement contains customary warranties by the Vendors to Animalcare, and vice versa, subject to
limitations on liability including a cap on liability. Under the Share Purchase Agreement, Ecuphar Invest NV and Alychlo
NV, being the majority Vendors, have agreed to give covenants restricting them from competing with the Enlarged Group for a
period of 24 months following Completion.
It is also proposed that Ecuphar Invest NV and Alychlo NV will enter into a relationship agreement with the Company and
Panmure Gordon with effect from Admission.
Following completion of the Acquisition, it is intended that Ecuphar will acquire Animalcare Limited in an intragroup
transaction, with Animalcare Limited thereby becoming a subsidiary of Ecuphar. The funding for this will be provided from
Ecuphar's existing debt facilities, details of which are set out in paragraph 15 of Appendix I in this Announcement.
8. Details of the Placing
The Bookbuild will be launched immediately following this Announcement and will be conducted in accordance with the terms
and conditions set out in Appendix III to this Announcement. The timing of the closing of the book, pricing and allocation
is at the absolute discretion of the Company and Panmure Gordon. The exact number of Placing Shares will be determined by
the Company and Panmure Gordon at the close of the Bookbuild. Details of the number of New Placing Shares, Sale Shares and
the Placing Price will be announced as soon as practicable after the closing of the Bookbuild process.
The net proceeds of the Placing receivable by the Company will be applied in full to paying a substantial proportion of the
cash component of the Acquisition consideration.
In addition, the Selling Shareholders (who comprise the Participating Directors and certain employees of the Company) also
intend to sell up to approximately 0.8 million Sale Shares in the Placing. In the case of each of the Selling Shareholders
except Lord Nick Downshire, the Sale Shares which are intended to be sold in the Placing will be obtained from the exercise
of certain existing Options or the exchange of shares in Animalcare Limited by the relevant individuals.
Edwin Torr, a Proposed Director, is also showing his support for the Acquisition and the Enlarged Group by intending to
purchase 85,000 Placing Shares in the Placing. The extent of the participation by the Selling Shareholders and Edwin Torr
will be announced following completion of the Bookbuild.
The New Placing Shares will be issued credited as fully paid and will, on issue, rank pari passu in all respects with the
Existing Ordinary Shares, including the right to receive all dividends and other distributions thereafter declared, made or
paid on the Enlarged Issued Share Capital.
On 23 June 2017, the Company, the Majority Vendors, the Existing Directors, the Proposed Directors, Panmure Gordon and
Degroof Petercam entered into the Placing and Admission Agreement, pursuant to which, among other things, the Joint
Bookrunners have each agreed to use its reasonable endeavours to place approximately 8.6 million New Placing Shares on
behalf of the Company. In addition, the Company, the Selling Shareholders and Panmure Gordon are intending to enter into
the Selling Shareholders' Agreement, pursuant to which Panmure Gordon agreed to use its reasonable endeavours to place up
to approximately 0.8 million Sale Shares on behalf of the Selling Shareholders.
The Placing is conditional on, among other things:
• the Placing and Admission Agreement having become unconditional and not having been terminated in accordance with
its terms;
· the Share Purchase Agreement not having been terminated or amended, and having become unconditional in all respects
(other than the conditions relating to Admission and the Placing and Admission Agreement); and
• Admission occurring by no later than 13 July 2017 (or such later date as the Company and the Joint Bookrunners
agree, not being later than 25 July 2017).
By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares,
investors will be deemed to have read and understood this Announcement in its entirety and to be making such offer on the
terms and subject to the conditions in it, and to be providing the representations, warranties, acknowledgements and
undertakings contained in Appendix III to this Announcement.
Pursuant to the Placing and Admission Agreement, each of the Majority Vendors and the Participating Directors will also
undertake to the Company and Panmure Gordon:
· not, without the prior written consent of each of the Company and Panmure Gordon, to dispose of any of the Ordinary
Shares held by them or their respective associates at Admission for a period of 12 months following Admission; and
· for a further period of 12 months following the end of such lock-in period, to be subject to customary orderly market
restrictions.
9. The Takeover Code and Rule 9 Waiver
Application of the Takeover Code
The Company is subject to the Takeover Code. Brief details of the Panel, the Takeover Code and the protections they afford
are described below.
The Takeover Code is issued and administered by the Panel. The Takeover Code applies to all takeover and merger
transactions, however effected, where the offeree company is, inter alia, a listed public company resident in the United
Kingdom. The Company is a listed public company resident in the United Kingdom and its shareholders are therefore entitled
to the protections afforded by the Takeover Code.
Under Rule 9 of the Takeover Code, where any person acquires, whether by a series of transactions over a period of time or
not, an interest in shares (as defined in the Takeover Code) which (taken together with shares already held by him and any
interest in shares held or acquired by persons acting in concert with him) carry 30 per cent. or more of the voting rights
of such a company, that person is normally required to make a general offer to all the holders of any class of equity share
capital or other class of transferable securities carrying voting rights in that company to acquire the balance of their
interests in the company.
Rule 9 of the Takeover Code also provides that, among other things, where any person who, together with persons acting in
concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of such
a company but does not hold shares carrying more than 50 per cent. of the voting rights of such a company, and such person,
or any person acting in concert with him, acquires an additional interest in shares which increases the percentage of
shares carrying voting rights in which he is interested, then such person is normally required to make a general offer to
all the holders of any class of equity share capital or other class of transferable securities carrying voting rights of
that company to acquire the balance of their interests in the company.
An offer under Rule 9 of the Takeover Code must be in cash (or with a cash alternative) and at not less than the highest
price paid within the preceding 12 months for any shares in the company by the person required to make the offer or any
person acting in concert with him.
Rule 9 of the Takeover Code further provides, among other things, that where any person who, together with persons acting
in concert with him holds over 50 per cent. of the voting rights of a company, acquires an interest in shares which carry
additional voting rights, then they will not generally be required to make a general offer to the other shareholders to
acquire the balance of their shares. However, individual members of a concert party will not be able to increase their
percentage interest in shares through or between a Rule 9 threshold without Panel consent.
For the purposes of the Takeover Code, persons acting in concert comprise persons who, pursuant to an agreement or
understanding (whether formal or informal), cooperate to obtain or consolidate control of a company. Paragraph (9) of the
definition of 'acting in concert' also deems any shareholders in a private company who sell their shares in that company in
consideration for the issue of new shares in a company to which the Takeover Code applies to be acting in concert for the
purposes of the Takeover Code unless the contrary is established.
Rule 9 Waiver
The Panel has confirmed that it considers Ecuphar Invest NV, Alychlo NV and Jaak Cardon (the son of Chris Cardon and a
minority shareholder in Ecuphar) to be acting in concert for the purposes of the Takeover Code. The Panel has also
confirmed that it does not consider the other Vendors (the current minority shareholders in Ecuphar) to be acting in
concert with the Concert Party.
None of the members of the Concert Party hold Existing Ordinary Shares as at the date of this Announcement. On completion
of the Acquisition, the Concert Party are expected to hold (by virtue of the Consideration Shares to be issued to Ecuphar
Invest NV, Alychlo NV and Jaak Cardon pursuant to the Acquisition) approximately 46.3 per cent. of the voting rights of the
Company.
Following Completion, it is expected that Chris Cardon, who is presumed under the Takeover Code to be acting in concert
with members of the Concert Party, will participate in the New LTIP which may result in him acquiring Ordinary Shares in
the Company. The maximum aggregate number of Ordinary Shares that Chris Cardon would be entitled to receive pursuant to any
awards made to him under the New LTIP will be equal to 0.5 per cent. of the Enlarged Issued Share Capital (the "New LTIP
Awards").
On the basis that Chris Cardon is granted and exercises the maximum aggregate number of New LTIP Awards, and assuming no
other changes in the Concert Party's or Chris Cardon's holding of Ordinary Shares or in the Company's issued share capital,
the maximum controlling interest of the Concert Party and Chris Cardon (being a person presumed to be acting in concert
with members of the Concert Party) in the period following Completion is expected to be approximately 46.8 per cent. of the
voting rights of the Company.
As a consequence of the Acquisition, without a waiver of the obligation under Rule 9 of the Takeover Code, the Concert
Party would be required to make a general offer for the balance of Ordinary Shares in issue immediately following the
Acquisition. In addition, any future exercise by Chris Cardon of any New LTIP Awards could potentially trigger an
obligation under Rule 9 of the Takeover Code, given that he is a person presumed to be acting in concert with members of
the Concert Party, depending on the Concert Party's holding of Ordinary Shares at that time. The Panel has been consulted
and has agreed, subject to the Whitewash Resolution being passed by the Independent Shareholders (on a poll) at the General
Meeting, to waive the obligation that would otherwise arise under Rule 9 of the Takeover Code as a result of the issue of
Consideration Shares to the Concert Party pursuant to the Acquisition or the exercise by Chris Cardon of any New LTIP
Awards. The Whitewash Resolution will be passed if approved by a simple majority of votes cast by Independent Shareholders
on a poll.
Shareholders should be aware that if the Resolutions are passed, the Concert Party will not be restricted from making an
offer for the Company. Ecuphar Invest NV and Alychlo NV have confirmed that the Concert Party has no intention of making an
offer for the Company.
Following completion of the Acquisition, unless the Concert Party holds more than 50 per cent. of voting rights in the
Company (as to which, see the paragraph below), Rule 9 of the Takeover Code will continue to apply to the Concert Party,
requiring a general offer to be made to all Shareholders if any member of the Concert Party or persons acting in concert
with them acquires any Ordinary Shares in addition to those which are the subject of the Whitewash Resolution, unless a
further waiver is obtained. Shareholders should note that the waiver of Rule 9 of the Takeover Code which the Panel has
agreed to give (conditional on the Whitewash Resolution being passed by the Shareholders) is only in respect of the
acquisition of Consideration Shares by the Concert Party as a result of the Acquisition and the exercise by Chris Cardon of
any New LTIP Awards and not in respect of any other future acquisition of Ordinary Shares by any member of the Concert
Party or persons acting in concert with them.
Shareholders should note that, if the Ordinary Shares issued to members of the Concert Party and persons acting in concert
with them within the scope of the Whitewash Resolution are such that the Concert Party together with such persons controls
more than 50 per cent. of voting rights in the Company following completion of the Acquisition, for so long as the Concert
Party together with such persons collectively controls more than 50 per cent. of voting rights in the Company, Rule 9 of
the Takeover Code will not apply in respect of future acquisitions of interests in Ordinary Shares by the Concert Party. As
a result, the Concert Party could acquire further interests in Ordinary Shares without being required to make a general
offer to all Shareholders pursuant to Rule 9 of the Takeover Code. Individual members of the Concert Party will not be able
to increase their percentage interests in shares through or between a Rule 9 threshold without the Panel's consent.
Rothschild has provided independent advice to the Independent Directors in respect of the Acquisition and the Rule 9
Waiver.
10. Change of Accounting Reference Date
In connection with the Acquisition, it has been resolved to change the accounting reference date of the Company to 31
December, conditional on Admission. As such, the first full reporting period of the Enlarged Group will be for the 12 month
period ending 31 December 2018.
11. Dividend Policy
The Existing Directors and Proposed Directors intend to continue the Company's current dividend policy which they believe
maintains an appropriate balance between investment for future growth and dividend flow to deliver overall value for
Shareholders.
The Company issued the following final and interim dividends in 2016, 2015 and 2014:
Year ended Ordinary final dividend Ordinary interim dividend Total dividend paid
30 June 2016 £904,000 (4.3 pence per share) £379,000 (1.8 pence per share) £1,283,000
30 June 2015 £839,000 (4.0 pence per share) £378,000 (1.8 pence per share) £1,217,000
30 June 2014 £788,000 (3.8 pence per share) £315,000 (1.5 pence per share) £1,103,000
The Company will change its financial year end to 31 December with effect from Admission. As a result, the first dividend
expected to be paid will be an interim dividend in respect of the six months to 30 June 2017 which the Existing Directors
and Proposed Directors anticipate will be paid in November 2017. The final dividend in respect of the financial year ending
31 December 2017 is currently anticipated to be paid in May or June 2018 following the announcement of the Enlarged Group's
preliminary results during March 2018.
From 2018 onwards, the Company's interim and final dividend payments are expected to be split approximately 30 per cent. to
70 per cent. respectively, in line with historical payment ratios.
12. Working Capital
In the opinion of the Existing Directors and the Proposed Directors, having made due and careful enquiry, the working
capital available to the Enlarged Group will be sufficient for its present requirements, that is, for at least 12 months
from Admission.
13. Share Incentive Schemes
The Group currently has in place three share incentive schemes: the Executive Share Option Scheme, the Existing LTIP and
the Savings Related Share Option Scheme. On 22 June 2017, the Board also adopted the New LTIP. The New LTIP is conditional
on, and will take effect from, Admission. The Directors do not intend to issue any new Options under the Existing LTIP or
the Executive Share Option Scheme after Admission.
In connection with the Acquisition, certain of the holders of Options that have vested and are exercisable under the
Executive Share Option Scheme intend to execute a form of election pursuant to which certain of their Options, of
approximately 1.4 million Ordinary Shares, will be exercised, conditional on completion of the Acquisition and the Placing.
Certain of these Option Shares to be issued on exercise of these Options are intended to be sold in the Placing.
The Options not exercised by the Selling Shareholders, as well as the unvested remainder of the Options under the Executive
Share Option Scheme and all existing Options under the Savings Related Share Option Scheme will continue in force and
effect on their existing terms until they become exercisable.
The Company intends to offer the two holders of awards under the Existing LTIP, Iain Menneer and Chris Brewster, the right
to exchange their shares in Animalcare Limited for Ordinary Shares before completion of the Acquisition, and each intend to
take up that right. As a consequence, approximately 0.9 million new Ordinary Shares are expected to be issued to Iain
Menneer and Chris Brewster under the Existing LTIP prior to Admission, and a proportion of such new Ordinary Shares are
intended to be sold as part of the Placing. In accordance with the Existing LTIP, the number of new Ordinary Shares to be
issued pursuant to the exercise of these rights was determined using the lower of the closing middle market price for an
Ordinary Share on 22 June 2017, being the dealing day before the date the offer to exchange was made and the average of the
closing middle market prices for an Ordinary Share over the dealing days in the thirty day period before that date.
14. Admission, Settlement and Dealings
Application will be made to the London Stock Exchange for the Enlarged Issued Share Capital to be admitted to trading on
AIM. It is expected that Admission will become effective and that dealings in the Enlarged Issued Share Capital will
commence on 13 July 2017.
CREST is a computerised paperless share transfer and settlement system which allows shares and other securities to be held
in electronic rather than paper form and transferred otherwise than by written instrument. The Articles permit the Ordinary
Shares to be issued and transferred in uncertified form in accordance with the CREST Regulations. The Ordinary Shares are
currently enabled for settlement through CREST. Accordingly settlement or transactions in the Ordinary Shares following
Admission may take place within CREST if relevant Shareholders so wish. CREST is a voluntary system and Shareholders who
wish to hold their shares in certified form will be able to do so.
The ISIN number of the Ordinary Shares is, and from Admission will continue to be, GB0032350695. The TIDM is, and from
Admission will continue to be, ANCR.
15. Material Contracts
Banking facility agreements
Ecuphar has entered into the following bilateral credit facilities with KBC Bank NV, BNP Paribas Fortis NV, Belfius Bank NV
and ING België NV (together, the "Banks"): (i) a E10 million bullet term facility dated 31 August 2016 to finance permitted
acquisitions of which E10 million was available as at 31 December 2016 (the "Term Loan A"), (ii) a E4.08 million quarterly
amortising term facility dated 31 August 2016 to refinance existing financial indebtedness of which E3.725 million was
outstanding on 31 December 2016 (the "Term Loan B"), and (iii) a E41.5 million revolving credit facility dated 31 August
2016 to refinance a bridge loan which was used to finance the LDE APA and other existing financial indebtedness and for
general corporate purposes and permitted acquisitions of which E25.2 million was drawn as at 31 December 2016 and E16.3
million is available (the "RCF") (together, the "Facilities"). The Facilities mature in March 2022 and carry a floating
interest rate calculated as EURIBOR plus a margin of 1.75% for the Term Loan A, 1.50% for the Term Loan B, and 1.50% for
the RCF.
Ecuphar has granted the following security interests to the Banks on a pari passu basis to secure the Facilities: (i) a
business pledge and a business pledge mandate covering substantially all the business assets of Ecuphar, (ii) a pledge on
all the shares Ecuphar holds in Medini NV and Orthopaedics.be NV, (iii) a pledge on receivables relating to the LDE APA,
and (iv) a pledge on all intellectual property rights owned by Ecuphar.
In terms of financial covenants, the Facilities provide for: (i) a minimum adjusted solvency ratio measured as consolidated
adjusted equity to consolidated adjusted total assets, (ii) a maximum leverage ratio measured as consolidated net debt to
consolidated EBITDA, and (iii) a minimum interest coverage ratio measured as consolidated EBITDA to consolidated interest
expenses.
The Facilities are subject to general terms and conditions which contain customary covenants (e.g. a negative pledge and
restrictions on additional financial indebtedness, acquisitions and disposals), information undertakings, representations
and events of default.
If a change of control over Ecuphar takes place, the Banks may require a cancellation and repayment of the Facilities prior
to their maturity date. Each of the Banks has provided a written waiver and consent letter whereby they have consented to
the Acquisition and the change of control resulting from the Acquisition. The Banks have also confirmed that Ecuphar can
draw down under the Facilities in order to fund part of the consideration payable in respect of the proposed acquisition of
Animalcare Limited following Completion, subject to the satisfaction of certain condition precedents. The Bank may require
security to be granted over the shares or assets of Animalcare Limited as one such condition.
16. Significant Change
There has been no significant change in the financial or trading position of the Existing Group since 31 December 2016, the
date to which the last interim financial information of the Existing Group was prepared.
Net debt of the Ecuphar Group at 31 May 2017 (being the latest practicable date prior to publication of this Announcement)
was £28.8 million compared with net debt of £23.8 million at 31 December 2016, being the date to which the consolidated
financial information for the Ecuphar Group set out in Appendix II of this Announcement. Management attributes this
increase principally to movements in working capital, with the Ecuphar Group carrying higher levels of inventory and trade
accounts receivable and a lower level of trade payables. Except as set out in this paragraph, there has been no significant
change in the financial or trading position of the Ecuphar Group since 31 December 2016, the date to which the consolidated
historical financial information for the Ecuphar Group set out in Appendix II of this Announcement.
17. General Meeting
The full terms of the Resolutions are set out in the notice convening the General Meeting, to be included in the Admission
Document to be published shortly after the conclusion of the Bookbuild, and are summarised below:
• Resolution 1 is an ordinary resolution to approve the Acquisition for the purposes of the AIM Rules for Companies.
• Resolution 2 is the Whitewash Resolution described above in paragraph 9 of Appendix I in this Announcement. It is an
ordinary resolution. This Resolution requires approval by the Independent Shareholders at the General Meeting.
• Resolution 3 is an ordinary resolution to authorise the Existing Directors under section 551 of the Companies Act to
allot equity securities for the purpose of issuing the Consideration Shares and the New Placing Shares. This authority is
in addition to the existing authorities granted to the Existing Directors at the previous annual general meeting of the
Company.
• Resolution 4 is a special resolution to approve the disapplication of statutory pre-emption provisions to allow for
the allotment of the New Placing Shares on a non pre-emptive basis.
• Resolutions 5 and 6 are special resolutions to remove existing, and now redundant, limitations on the authorised
capital of the Company set out in the Company's memorandum and articles of association. These are required because the
issue of the Consideration Shares and the New Placing Shares would otherwise result in the Company's share capital
exceeding the limits set out in the memorandum and articles of association. Resolutions 5 and 6 are not conditional on any
of the other Resolutions being passed.
• Resolution 7 is a special resolution to remove existing limitations on the composition of the Company's board and
restrictions on non-UK resident directors and shareholders set out in the Company's articles of association, and to conform
the provision of the articles of association relating to the timing of the annual general meeting with the position under
the Companies Act.
All of Resolutions 1 to 6 need to be passed at the General Meeting in order for the Acquisition to be implemented and if
any one of those Resolutions is not passed, the Acquisition will not go ahead. Voting on all Resolutions at the General
Meeting will be by way of a poll.
16. Irrevocable undertakings
James Lambert, being the only Independent Director who holds Existing Ordinary Shares, has given an irrevocable undertaking
to the Company to vote in favour of the Resolutions (and to procure that such action is taken by the relevant registered
holders) in respect of his beneficial holdings totalling 1,313,691 Existing Ordinary Shares, representing approximately
6.19 per cent. of the Existing Issued Share Capital.
In addition, the Company has received letters of intent and irrevocable undertakings from certain other Shareholders to
vote in favour of the Resolutions to be proposed at the General Meeting in respect of a total of 1,425,384 Existing
Ordinary Shares representing, in aggregate, approximately 6.7 per cent. of the Existing Issued Share Capital.
Iain Menneer, Chris Brewster and Nick Downshire (along with the other Selling Shareholders) are considered not to be
independent in respect of the Rule 9 Waiver by virtue of their participation in the Placing, and will therefore not vote in
respect of the Whitewash Resolution. Iain Menneer, Chris Brewster and Nick Downshire have given irrevocable undertakings to
the Company to vote in favour of the Resolutions other than the Whitewash Resolution (and to procure that such action is
taken by the relevant registered holders) in respect of their beneficial holdings totalling 1,492,578 Existing Ordinary
Shares, representing, in aggregate, approximately 7.0 per cent. of the Existing Issued Share Capital.
In total, therefore, the Company has received letters of intent and irrevocable undertakings to vote in favour of the
Resolutions to be proposed at the General Meeting in respect of, in the case of all Resolutions other than the Whitewash
Resolution, 4,231,653 Existing Ordinary Shares, representing, in aggregate, approximately 19.9 per cent. of the Existing
Issued Share Capital and, in respect of the Whitewash Resolution, 2,739,075 Existing Ordinary Shares, representing, in
aggregate, approximately 13.9 per cent. of the Existing Issued Share Capital entitled to vote on that Resolution.
17. Recommendation
The Existing Directors consider the Acquisition to be in the best interests of the Company and the Shareholders as a whole.
Accordingly, the Existing Directors recommend that Shareholders vote in favour of the Resolutions (such recommendation
being given, in the case of the Whitewash Resolution, as provided below).
Iain Menneer, Chris Brewster and Nick Downshire are considered not to be independent in respect of the Rule 9 Waiver by
virtue of their participation in the Placing, and will not therefore vote in respect of the Whitewash Resolution. Iain
Menneer, Chris Brewster and Nick Downshire do not therefore feel it appropriate to make any recommendation to Independent
Shareholders in respect of the Whitewash Resolution.
The Independent Directors, having been so advised by Rothschild, consider that the Rule 9 Waiver is fair and reasonable and
in the best interests of the Company and the Independent Shareholders as a whole. In providing advice to the Independent
Directors, Rothschild has taken into account the Independent Directors' commercial assessments. Accordingly the Independent
Directors recommend that the Shareholders vote in favour of the Whitewash Resolution.
APPENDIX II - HISTOICAL FINANCIAL INFORMATION ON ECUPHAR
Consolidated income statements
in £'000 Notes For the year ended 31 December
2016 2015 2014
Revenue 20.1 68,361 47,097 34,478
Cost of sales 20.2 (40,086) (30,566) (23,842)
Gross profit 28,275 16,531 10,636
Research and development expenses 20.3 (1,776) (1,064) (284)
Selling and marketing expenses 20.4 (9,740) (6,682) (3,390)
General and administrative expenses 20.5 (12,607) (8,738) (5,081)
Net other operating income/(expenses) 20.6 1,887 (345) (277)
Operating (loss) profit 6,039 (298) 1,604
Financial expenses 20.9 (988) (668) (341)
Financial income 20.10 97 74 46
Profit (Loss) before taxes 5,148 (892) 1,309
Current income taxes 20.11 (1,305) (537) (466)
Deferred taxes 20.11 (327) 735 53
Net (loss) profit 3,516 (694) 896
Net (loss) profit attributable to:
The owners of the parent 21 3,515 (694) 896
Non-controlling interest − − 1
Earnings per share attributable to
ordinary owners of the parent
Basic 0.25 (0.06) 0.08
Diluted 0.25 (0.06) 0.08
The accompanying notes form an integral part of these consolidated special purpose financial statements.
Consolidated statements of comprehensive income
in £'000 Notes For the year ended 31 December
2016 2015 2014
Net (loss) profit for the year 3,515 (694) 896
Other comprehensive income (loss)
Financial instruments at fair value
through OCI* (5) − −
Cumulative translation differences* 2,515 (153) (354)
Other comprehensive income (loss), net of taxes 2,510 (153) (354)
Total comprehensive (loss) income for the year, net of taxes 6,025 (847) 542
Total comprehensive (loss) income attributable to:
The owners of the parent 6,025 (847) 541
Non-controlling interest − − 1
* May be reclassified subsequently to profit & loss
The accompanying notes form an integral part of these consolidated special purpose financial statements.
Consolidated statements of financial position
in £'000AssetsNon-current assets For the year ended 31 December 1 January
Notes 2016 2015 2014 2014
Goodwill 5 9,959 8,974 2,083 2,229
Intangible assets 6 21,246 19,415 7,279 7,425
Property, plant & equipment 7 719 662 386 330
Deferred tax assets 20.11 1,269 1,240 956 969
Other financial assets 69 68 52 96
Other non-current assets 1 1 − −
Total non-current assets 33,263 30,360 10,756 11,049
Current assets
Inventories 9 13,254 13,024 6,383 6,937
Trade receivables 10 10,781 9,801 3,889 3,699
Available-for-sale financial assets 18 423 1 1 −
Other current assets 1,191 1,330 300 346
Cash and cash equivalents 11 951 749 966 1,154
Total current assets 26,600 24,905 11,539 12,136
Total assets 59,863 55,265 22,295 23,185
Equity and liabilities
Equity
Share capital 12 7,256 7,256 5,148 5,148
Share premium 12 8,821 8,821 − −
Treasury shares − (646) (646) −
Retained
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